The CRM Glass is Half Full
Onyx CEO Brent Frei is armed with a new product release and a new channel approach
For the rest of the July 2002 issue of CRM magazine please click here
At first glance Onyx Software appears to be under the gun. The CRM vendor is coming off a first quarter in which it experienced a decline in software licensing and service revenue and learned that Microsoft Corp. is entering its space. However, with a new partner strategy now hitting its stride and a product launch last month, Chief Executive Brent Frei believes the company is well-positioned. Frei sat down with CRM magazine Editor-in-Chief Elliot Markowitz to discuss Onyx's challenges and other issues facing the CRM industry. CRM: The first quarter was a rough one for Onyx as well as some other CRM vendors. What happened? Brent Frei: We went public in February 1999 and one quarter after the IPO, we were cash-flow positive. We never had any plans not to be cash-flow positive. Then 2001 came and made an example of everyone. We had to take a 100 percent growth rate and run rate on expenses, and ratchet that back to downward growth, which was a very trying effort for everyone in the company. We had to pull back on the harness real hard on plans of being break even by the end of [2001], which we were within $200,000 of. And we expected to be cash-flow positive in the first quarter, but we did not execute on the sales side. CRM: What do you have in your favor that makes you believe the second half of 2002 will be better? Frei: I feel really good about the things we put in place and I feel really good about the products that are coming out. But most important, one of the things that made us inefficient in the [first] quarter was, we changed our partnering model and we are now really focused on the high-end folks, partly because now they are focused on the mid-market. In 2001 we realized we were not getting any distribution leverage from the boutique or midtier services firms, yet we were throwing a ton of service revenue over the wall to them. So we needed to focus some of that service revenue we are generating at some of the big guys like IBM [Global Services], Accenture, and Unisys. We had trouble in the past getting their attention. One of the design builds of our product a few years ago was, how do you build something that you can deploy broadly with lots of functionality, fast, with low cost? It didn't fit their service models. But the economy turned the clients' attitude around, so we became a very important alternative to them. CRM: Where are you with this new channel approach? Frei: Last year was all about signing it up. The first one we signed up was IBM in August. They are just really coming on line now and we are inside engagements with them. We will also be announcing that they signed up to be a reseller of ours as well, particularly in France with a Cisco bundle, and they are working on a North American one as well. Deliotte signed up in December, and Unisys just signed up in Latin America and in North American areas of healthcare and government. The real challenge now is to execute. CRM: So are you going to have a duel-selling model of direct sales and large consultants? Frei: We are not going to abandon our direct sales efforts. I do not believe that a CRM vendor will be successful without a direct sales model. And in every one of the partner-driven deals, we are going to have a direct sales component in that. So it shouldn't be perceived as an indirect sales channel. It should not be perceived as, we are partnering with these guys with our direct sales. Certainly for at least the next year they are going to come to us to help them sell in accounts. CRM: What about Onyx's technology compared with other CRM vendors? What is different about Enterprise CRM 4.0? Frei: A while ago we said we were going to rearchitect from the ground up around the Internet, and we did. We started from scratch and we have an incredible application platform now, and it's 24 months ahead of everybody else. It is the only one that can be published in its entirety as a Web service. It is a differentiator like none other in any field where the architecture is truly important. So the platform is done and now we are focusing a lot on feature work, and this release is part of that. CRM: Is Onyx focused on winning new customers or on servicing its existing customer base? Frei: Well, bless those companies that are signing up new accounts, because most of the companies we talk to are investing in what they currently have, and not making much new capital expenditures. So whether it's another division of a company or a just an expansion of an existing system, that seems to be the folks where you get the least resistance on budgetary sign-offs. However, there is incredible pent-up demand, where people have CRM projects lined up and soon as the budgets are released they are ready to go. CRM: Microsoft is entering the CRM arena later this year with its own offering. The industry seems to think it will succeed at Onyx's expense. Frei: To see big guys come into the market helps legitimize it, and Microsoft doesn't come into any market where it can't make a billon dollars. So that is a good sign. Our biggest concern about Microsoft's entrance is simply the confusion. It means the company is going to come in at the low end and have a contact management--style solution, and intend to move up. But I don't think the organizational model or the way Microsoft goes about markets are going to be successful in selling enterprise software. It has a channel organization that thinks about volume and low price. I can tell you that anyone who is doing business applications for that company is feeling a lot of resistance from the core DNA of how Microsoft does business, which has been very successful in the channel but must learn how to do business applications. And Microsoft tends to get everything right on the third to fourth version. So look out three to four years, and it may have a successful small- to medium-enterprise CRM solution. CRM: I recently interviewed Salesforce.com Chief Executive Mark Benioff, and he claims that companies like Onyx will be dead in a few years as more businesses give way to a hosted CRM environment? What are your thoughts on this? Frei: The reality is they are the ones who are most at risk with regards to Microsoft, because it is their market that Microsoft wants the most. Noncustomized, really simple, departmental, divisional as a sales group, online subscribe--that is what Microsoft really wants. So Salesforce.com is the one that is the most at risk. We don't see them in deals and they don't come and take our deals. The very vertical approach is what we see in the hosted area. But Fortune 500 companies are not going to have someone run their core CRM system for them. What they are going to do is subscribe to snippets of what is out there and they will do it from a Web-services perspective.
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